A brand new study demonstrates that health care can charge pensioners greater than $200,000 during their own pension years - even with Medicare coverage. Are you able to invest sufficient to make up for any shortfall? Calculate Retirement income very careful.

Even with insurance coverage from Medicare (which may be downsizing in years ahead to balance the deficit), Fidelity Consulting (a department of Fidelity Investments) projects that an American husband and wife that retirees at age 65 will require around $200,000 to cover 20 years of out-of-pocket medical expenses-not including the cost of over-the-counter drugs, dental services or long-term treatment. That's five.3 % more than final year's $190,000 figure, an increase that Fidelity states is because of healthcare costs increasing 5.8 percent per year because it began delivering the approximation in 2002. It is most likely that most pension plans do not calculate retirement needs for healthcare money effectively.

The estimation for health-care costs considers that retirees do not have employer-sponsored retiree health care, but contains (1) costs associated with Medicare Part B and Part D premiums, (2) Medicare cost-sharing provisions (like co-payments, coinsurance, deductibles, and excluded advantages), and (3) out-of-pocket costs for prescription drugs. Have you calculate a retirement spending budget to account for all of those costs?

Fidelity's number in fact could be small, based on the Employee Benefit Research Institute (EBRI). It says Fidelity's study didn't account for upcoming life expectancy, and estimates that a 65-year-old husband and wife who retires without employer-sponsored medical health insurance will need $216,000 if they live to age 80, $444,000 if they live to age 90 and $778,000 if they live to age 100. 'Medicare covers only 51 % of costs connected with health care services,' write EBRI in an issue brief. 'Individuals are in large part the cause for covering the other forty-nine percent. Meanwhile, Medicare faces financial distress in 2018 and it's likely that benefits will probably be reduced in the future. Therefore, if Medicare benefits are decreased, a couple age sixty five today may need significantly more than $300,000 for healthcare costs in retirement.'2 Just how may one possibly calculate retirement needs for medical care when the costs are increasing and we are all living longer?

The above might appears like a lot of money, but whenever you take the power of compounding into consideration, it may be easier than you think to preserve it. For illustrative purposes, let's use Fidelity's premiss that a couple would need $200,000 to cover 20 years of medical costs in retirement. That is $10,000 a year. If you can afford to put $150,000 into a 'medical expenses' account at pension, which returns a theoretical average annual return of 8%, you could take out $10,000 each year and not run out of money for 20 years. Actually, you'd end up with $718,465. The table listed below shows:

Growth of $150,000 with $10,000-per-year withdrawals

Age

Balance

Withdrawal

8% Earnings

65

$150,000

$0

$12,000

66

$162,000

$10,000

$12,160

67

$174,160

$10,000

$13,133

68

$187,293

$10,000

$14,183

69

$201,476

$10,000

$15,318

70

$216,794

$10,000

$16,544

71

$233,338

$10,000

$17,867

72

$251,205

$10,000

$19,296

73

$270,501

$10,000

$20,840

74

$291,341

$10,000

$22,507

75

$313,849

$10,000

$24,308

76

$338,157

$10,000

$26,253

77

$364,409

$10,000

$28,353

78

$392,762

$10,000

$30,621

79

$423,383

$10,000

$33,071

80

$456,453

$10,000

$35,716

81

$492,170

$10,000

$38,574

82

$530,743

$10,000

$41,659

83

$572,403

$10,000

$44,992

84

$617,395

$10,000

$48,592

85

$665,987

$10,000

$52,479

86

$718,465

The lesson is this. Calculate retirement requirements not only for general costs but realistically for your health costs above. And remember that the costs mentioned in the above research don't incorporate the costs of long-term treatment.

1 Fidelity Consulting, as of July 2006. Assumes no employer-provided retiree health insurance coverage and life expectancies of 17 years for a male and 20 years for a female.

2 Resources: EBRI, as of March 2006 (http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=3650).

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